| by : Austen Hufford |
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| A crash in office values could start a doom loop with banks, with falling prices leading to less finance and thus lower prices. Gloomsters think that could spread across the multitrillion-dollar commercial real-estate sector, sucking money out of the economy as banks and institutional investors turn more cautious, James Mackintosh reports. Mori Trust bought half an office block next to Grand Central Terminal from real-estate investment trust SL Green. The building turned out to be worth more than many thought. Bulls think that the worst might be priced in and that this deal marks a turning point at least for high-quality offices. |
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| The Federal Reserve’s bank stress test released this week assumed a worst-case scenario where commercial real-estate prices drop 40%, with falls concentrated in office and retail. REIT investors think that for offices, and to a lesser extent retail, the stress is already here.The rest of commercial real estate is doing OK, with real strength in some parts such as data centers and cold storage. But all types of property—even apartment complexes—face a single overriding problem: rising interest rates. |
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| The Commerce Department releases personal income and outlays for May, including the personal consumption expenditures price index. Our coverage will be available here. (8:30 a.m. ET) The University of Michigan releases its final estimate for consumer sentiment in June. (10:00 a.m. ET)Programming Note: This newsletter will be back on Wednesday morning. Have a great July Fourth. |
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| The Latest on the Economy |
| Treasury Yields Resume Climb |
| Government-bond yields climbed in the second quarter of the year, with investors saying persistent signs of economic strength and the easing of stress in the banking sector could send them higher still in the months ahead.When the quarter began in April, bonds were rallying as investors reeled from rapid-fire banking collapses and worried about a broadening crisis that could disrupt the flow of money and credit to households and businesses. Instead, yields have rebounded as the economy and markets powered through the turbulence, including a debt-ceiling fight that carried the government to the brink of default. |
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| Now, recent reports have shown that the labor market remains strong even as inflation declines, boosting optimism that the Federal Reserve can tame price increases without tipping the economy into recession.Analysts warn that in the months ahead, the central bank’s dramatic rate increases since early 2022 might yet begin to work against growth more visibly. Meanwhile, confidence has lifted the yields on Treasury bonds, which tend to climb with expectations for economic activity, inflation and how the Fed will set interest rates. |
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| Debate Over Credit-Card Costs |
| Legislation to change how credit-card transactions are handled is making its way through Washington. Proponents are hoping to lower the fees that merchants pay to accept credit-card payments, and in turn the fees that big banks and card networks collect—prompting strong opposition from those giants. Along the way, things like how credit-card purchases at gun stores are categorized, and how banks parcel out rewards points like airline miles, are emerging as talking points in a fierce debate.The bill instead directs the Federal Reserve to write a rule that most very large bank card issuers have to put at least two credit networks on their cards, as they typically do for debit, and they can’t select both Visa and Mastercard. The alternative network could then, advocates argue, use lower fees as a way to motivate merchants to choose their network to route a payment. |
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| Governments Take Aim at Corporate Profits |
| The next phase in the war against inflation is taking shape in Europe, where governments are actively cajoling businesses to cut prices on everything from pasta to chicken. Their argument: Profits are too high.The European Union’s statistics agency Friday said consumer prices in the 20 countries that share the euro were 5.5% higher than a year earlier, a decline from the 6.1% inflation rate recorded in May, and the slowest increase since the start of 2022.However, that slowdown in inflation has largely been due to falling energy prices. The core rate of inflation—which excludes volatile items such as energy and food—rose to 5.4% in June from 5.3% in May. More worryingly for households, food prices continued to rise at a rapid pace, albeit more slowly than in recent months.After last year’s steep energy-price rises normalized, sharp increases in food bills this year have alarmed European governments. Now they are pushing back by putting pressure on grocery stores and food producers to limit or reverse price rises. |
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